Positive Undertone
The first ever postponement of the tabling of South Africa’s national budget occurred on 19 February - the very day that it was scheduled for – evoking wide-ranging commentary from the full spectrum of society. However, the clinical capital market reaction provided a sobering reflection on the implications of the postponement (which was due to the DA’s refusal to approve the proposed 2% hike in the VAT rate).
During the two weeks following the postponement of the budget, the rand exchange rate vs the US dollar strengthened by 1.2% and the country’s 10-year bond yield declined by 15 basis points - a clear confirmation of the positive undertone of this (non-) event. In fact, the commentary from business leaders was overwhelmingly positive, as it demonstrated the effectiveness of the government of national unity (GNU) in preserving truly democratic principles relating to the country’s fiscal affairs.
Positive GDP growth in 2024
South Africa’s GDP for 2024 recorded growth of 0.6% per cent to realise production of goods and services worth a total of R7.3 trillion. During the fourth quarter of last year, year-on-year economic growth came in at 0.9% - an improvement from the paltry year-on-year growth rates of 0.4% recorded during the previous two quarters, but still well short of the economy’s potential.
A positive trend emanating from the fourth quarter GDP data is the further recovery of the ratio between the gross operating surplus and total value added, which has progressed from 45.7% in 2019 (prior to Covid) to 49.8%. The sectors for utilities; agriculture; and transport & communication occupy the top three rankings for this key indicator of the productivity of economic capital.
Hopefully, a further lowering of interest rates, combined with progress in repairing and expanding the country’s infrastructure, will lead to higher economic growth in 2025.
Job creation expands in 2024
Following a welcome jump in employment creation during the second half of 2024, the total number of jobs in the South African economy ended the year on a high note, breaching the 17 million level for the first time. The sector for financial intermediation, insurance, real estate and business services was responsible for most of the employment created in 2024, adding more than 300,000 new jobs.
Although Gauteng, the Western Cape and KwaZulu/Natal continue to occupy the top-three position in terms of total employment, the Eastern Cape took the honours last year with employment growth of more than 100,000.
A predicable finding in the latest quarterly employment statistics published by Statistics SA is the relatively low unemployment rate for graduates and people with other tertiary education, namely 8.7% and 19.3%, respectively (at the end of 2024). In both cases these rates declined marginally during last year. Hopefully, progress with the repair and expansion of the country’s infrastructure will stimulate job growth further in 2025.
New record for retail trade sales
South African retailers made a comeback during 2024, mainly as a result of two marginal cuts in the prime overdraft rate, which released some pent-up demand. Since the beginning of 2020, retailers were hammered by three unfortunate events, namely the Covid-lockdowns, the riots in KwaZulu/Natal in July 2021 and the decision by the monetary policy authorities to raise interest rates to their highest level in 14 years, despite the absence of inflationary pressures caused by excess demand in the economy.
A fortuitous combination of marginally lower interest rates, an increase in average remuneration levels and low inflation managed to lift household consumption expenditure by a considerable margin last year. As a result, retail trade sales reached a new record high of more than R1.4 trillion in 2024.